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Maruti Suzuki share price hits new 52-week high post Q3 results, may rally 20% more; buy, sell or hold?

Maruti Suzuki is expected to recover both market share and margin. Strong demand, softening commodity inflation, and improving semiconductor shortage will support a recovery in margin.

Maruti Suzuki
Maruti Suzuki stock has rallied 20% in the last one month

Maruti Suzuki India share price gained over 1.5 per cent to hit a fresh 52-week high on Thursday as brokerages kept favourable ratings on the stock after the company’s fiscal third quarter earnings beat street expectations. Maruti Suzuki stock was trading up Rs 126 or 1.47%, at Rs 8727.40. Benchmark BSE Sensex fell more than 1000 points, while NSE Nifty 50 dived more than 250 points to trade below 17000 levels in the morning trade. Earlier this week, the automaker reported a 47.82% on-year decline in consolidated net profit to Rs 1,041.8 crore for the quarter ended December 2021, mainly on account of ongoing semiconductor shortage and increase in commodity prices.

Maruti Suzuki stock has rallied nearly 20% in the last one month, and over 11% in the last one year. Going forward, the share price is expected to rise with an improvement in supplies, stability in RM cost, and launch of new products as Maruti Suzuki is expected to recover both market share and margin. Strong demand, softening commodity inflation, and improving semiconductor shortage will support a recovery in margin, according to Motilal Oswal Financial Services.

Motilal Oswal: BUY
Target price: Rs 10,300

According to the domestic brokerage firm, Maruti Suzuki reported a strong recovery in 3QFY22, despite losing 90,000 units due to the semiconductor shortage. The automaker will be addressing weakness in the mid-SUV segment by launching products. The brokerage expects Maruti to strengthen its portfolio in the coming years. “We raise our FY22E/FY23E EPS by 21%/6%, factoring in higher realizations and lower depreciation. We maintain our buy rating, with a TP of Rs 10,300 per share,” said Motilal Oswal in its note.

Jefferies: BUY
Target price: Rs 10,500

According to the international brokerage, Indian PV demand is recovering well amid the COVID waves, and they expect the industry to grow 12%, 24% and 14% in three financial years respectively. “MSIL’s 3Q EBITDA fell 30% YoY but rose 82% QoQ (5% above JEFe). EBITDA margin improved 250bp QoQ after four consecutive quarters of decline. We see better times for MSIL ahead given strong demand recovery, easing chip constraints, input cost pressures behind, and a product cycle likely around the corner. MSIL’s commentary was positive on all the above parameters”, Jefferies said in its note. The brokerage expects volumes to rise 39% over FY22-24, which along with strong margin expansion, should drive more than doubling of EBITDA and trebling of EPS over the next two years. It has retained buy rating on the stock, and has hiked target price to Rs 10,500 from Rs 9,250 earlier.

Sharekhan: BUY
Target price: Rs 9,820

Maruti Suzuki’s Q3FY22 operational performance exceeded expectations, driven by operating leverage benefits, lower sales promotion and price hikes, according to Sharekhan. The automaker is likely to benefit from buoyant demand for passenger vehicles, driven by rising demand in tier-2 and tier-3 cities and rural areas. It is also expected to regain market share in SUV segment, led by product launches in mass and premium segments.

“We stay positive on Maruti Suzuki India Limited (MSIL), as we expect the shortage of semiconductor chips to gradually improve and volumes to regain pace going forward. Buoyant rural demand and new launches would be key growth drivers for the company going forward. We expect MSIL’s market share to improve, led by rising demand from rural and semi-urban markets, improving supply constraints, new launches and focus on green technology,” the brokerage said. It reiterated a Buy rating on the stock price with revised target price of Rs 9,819, led by buoyant demand and comfortable valuations.

Axis Capital: SELL
Target price: Rs 6,900

On account of Risk-reward being unfavorable, Axis Capital downgraded the stock from REDUCE to SELL with revised target price of Rs 6,900. “We build in volume recovery in FY23-24. Margin unlikely to cross 10% unless commodity costs correct materially, in which case it will benefit all the players and may get passed on to consumers. Revise TP to Rs 6,900 (from Rs 6,600) on roll-forward; our TP is based on 25x Dec-23E core EPS plus cash and cash equivalents of Rs 1,600 per share. Unattractive valuation continues to drive our cautious view,” the brokerage said in its note.

Kotak Securities: SELL
FV: Rs 7,800

The brokerage increased its FY2023-24E EBITDA estimates by 4-5% on 40-50 bps higher EBITDA margin assumptions. It also fine-tuned our FY2022-24E EPS estimates as higher margin is offset by lower other income assumptions. “We expect the company to clock in sales of 470,000 units and EBITDA margin of 8.7% in 4QFY22E. At CMP, the stock has already priced in strong recovery in volumes as well as margin. The stock is already trading at 28.2X core FY2024E EPS, which we believe is expensive. We maintain sell rating and revise our FV to Rs 7,800 (from Rs 7,350 earlier),” it said.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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